Saudi Arabia to Fine Firms With Too Many Foreign Workers

DUBAI — Like most Gulf countries, Saudi Arabia has a major unemployment problem among its citizens, resulting in a jobless rate of 10.5 percent, according to government figures. The government has been trying to encourage companies to hire Saudi citizens for years with little impact.

Now the government is making a new push: Private companies in Saudi Arabia with more foreign employees than Saudis are to be hit with fees.

The policy, which took effect Nov. 15, makes it mandatory for private companies with a majority of foreign staff to pay 2,300 Saudi riyals, or $640, a year for each expatriate worker, according to a statement by the Labor Ministry.

Many workers are exempt from the rule. They include domestic servants, foreigners with Saudi mothers, and citizens of other Gulf Cooperation Council members — the United Arab Emirates, Bahrain, Oman, Kuwait, and Qatar.

“The aim of this decision is to increase the competitive advantage of local workers by reducing the gap between the cost of cheaper expatriate labor and local labor, and developing national talent,” Moufarrej Haqbani, the deputy minister of labor for planning and development, said in a statement.

If strictly enforced, the policy would be a big change for companies in Saudi Arabia that are in the habit of employing large numbers of foreigners. These include construction companies that typically have large numbers of workers from China and Southeast Asia.

They will now need to choose between paying a fee for each foreign employee or searching for Saudis who will demand higher wages, economists say. About 90 percent of employees at private companies in Saudi Arabia are expatriates.

Not everyone thinks it is a good idea.

“This can trigger a shift in focus from skills and development to maintenance and plain adherence to quotas, which can hinder productivity,” said Philippe Dauba-Pantanacce, a senior economist covering Turkey, the Middle East and North Africa for Standard Chartered Bank in Dubai.

“Such regulation can increase the costs of a business through employment of a less competitive worker,” he said.

The levies are the latest in a series of initiatives that the Saudi government has implemented since Adel Fakeih took over as the Minister of Labor in August 2010.

In addition to new rules allowing Saudi women to work in sectors like retailing, the government asked companies to adhere to a quota of Saudi employees, depending on their size and sector, last year. Companies that do not abide by these minimum quotas are prohibited from securing visas for foreign workers.

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In September, the Ministry of Labor said it had created 380,000 new jobs in 10 months through the quota system, which has been criticized by some employers for raising their costs or disrupting their operations.

Saudi Arabia has a population of 26.5 million, of whom 20.6 million are Saudi citizens, according to the C.I.A. World Factbook. The kingdom has a far bigger population than other Gulf Cooperation Council nations, which mostly have minority local populations.

Oman is an exception, with 2.5 million citizens out of a total 3.1 million population. Out of Qatar’s 1.9 million people, only 250,000 are Qatari citizens.

Because of their tiny populations the Gulf countries have relied extensively on expatriate labor to build their futuristic-looking cities and infrastructure.

In Saudi Arabia, though, unemployment, particularly among young people, is a potentially explosive political issue.

In January, Mr. Fakeih said the country, which has the largest economy in the Middle East, needed to create three million jobs for Saudi citizens by 2015 and six million by 2030, partly through “Saudi-izing” work now done by foreigners.

The idea behind the new charges is to provide incentives to create jobs in different fields. Last week, the Riyadh-based furniture and interior design company Al Mutlaq approached Khalid Al Khudair, founder of the Saudi female recruitment company Glowork, to find local staff to avoid paying extensive fees. The company has over 500 employees — none of them Saudis.

Mr. Al Khudair found two Saudi women who had graduated from the Paris School of the Arts in interior design. Al Mutlaq hired them.

“Saudis haven’t been used to hard labor at all, jobs like plumbing and construction, nobody puts on a hard hat and gets their hands dirty,” Mr. Al Khudair said.

“But this is a time of change and we’re even seeing Saudis working behind the register at McDonalds, which never used to happen, so they are starting to take real work seriously,” he said.